Rick Perry's past is good for his future as Energy secretary
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A good indication that former Texas Gov. Rick Perry will be an effective Energy secretary is, in his 14 years as governor, he presided over a highly successful transition from monopoly regulation to competition and customer choice in electric power.

In Texas, a dozen other states and the District of Columbia, industrial, commercial and residential electricity consumers can choose their power suppliers. In Washington D.C., most federal facilities are powered by competitively purchased electricity. In November, 72 percent of Nevada voters endorsed a ballot initiative in support of opening the state’s electricity market to customer choice.

In competitive energy market jurisdictions, which account for a third of all U.S. electricity production and consumption, dozens of retail suppliers vie with one another for electricity customers. Competitively sourced power is delivered to customers over the network of the local investor-owned utility company, which remains state regulated as a local distribution utility monopoly.

Texas is widely regarded as having achieved the most complete competitive electricity market transformation in the country. The Public Utilities Commission of Texas recently reported that 92 percent of all eligible Texas customers are buying their power from competitive retail providers.

The adherence to market principles by Perry and his fellow Texas policymakers has paid off for consumers in a big way. In October, Donna Nelson, who chairs the Texas Public Utility Commission, reported that electricity prices in the service territories of the state with competition were considerably lower than in the municipal and rural cooperative utility areas of the state exempted from customer choice. She also reported that average prices in competition areas, such as the Dallas and Houston areas, are only about half the levels of 2001 when competition began.

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Texas can be compared with other states using U.S. Energy Information Administration data. Through September 2016, average delivered electricity prices in Texas were well below 2008 levels. They were down 15.2 percent for households, 28.9 percent for commercial customers and 40.9 percent for industrial users. This is the best record in the nation.

In contrast, the group of 35 states in the contiguous United States that retained the old monopoly utility model experienced average weighted price increases from 2008 through September 2016. They were up 18.7 percent for residential, 12.6 percent for commercials and 9.2 percent for industrials.

Free market principles are also proving out in the other 13 electricity customer choice markets. Weighted average delivered residential prices are up only half as much as in the monopoly states, at 8.2 percent. Meanwhile, prices have fallen 7.7 percent for commercial enterprises and 9.9 percent for industrials from 2008 through 2016.

The superior performance of competitive electricity markets is no accident. Fuel and technology risks are no longer allocated mainly to customers, but are borne by investors who can better manage such risks. Unlike their monopoly counterparts, the competitive states have been able to promptly respond to four big changes in the electricity world.

First, as production of natural gas from shale formations has surged, customers in the competitive states have been able to take full advantage of lower prices, unhindered by regulatory rigidity and delay.

Second, electricity consumption nationally has been flat since 2008, at an estimated -1 percent. Traditional monopoly states set prices largely according to accounting conventions unrelated to market realities. Because monopoly utilities have a quasi-guarantee of full cost recovery, consumers experience rising per-unit prices as demand weakens. In competition states, prices reflect the market.

Third, although technology is changing rapidly, consumers in monopoly states pay for the capital investment in old, less efficient power plants while in competitive states consumers promptly get the benefit of newer, more economical plants.

Finally, the digital wave has reached the shores of the electricity industry. The smart grid is becoming ubiquitous. An intelligent delivery network, digital meters, programmable thermostats and other controls interact with appliances, machinery and telecommunication devices, providing a quantum leap in customer sovereignty. The competitive electricity markets welcome these customer-friendly innovations.

Delivering lower energy prices is a key feature of the Donald Trump’s economic program as set forth by prospective Commerce Secretary Wilbur Ross and White House National Trade Council Chief Peter Navarro.

In Rick Perry, President-elect Trump has found someone for the Energy Department who followed his instincts about the power of the market to deliver value to consumers and turned the electricity world right-side up in his home state.

Darrin Pfannenstiel is president of the Retail Energy Supply Association.


The views of contributors are their own and are not the views of The Hill.